A change at the Fed - what could it mean?

November 03, 2017


Story Highlights

  • For the first time since 1979, President Trump has nominated someone besides the current Fed Chair to run the Federal Reserve.
  • If confirmed by the Senate, Jerome Powell would take over for Janet Yellen in February 2018.
  • Powell has served on the Fed Board of Governors since 2012.

Breaking with a tradition dating to 1979, President Donald Trump chose not to re-appoint Janet Yellen as Federal Reserve Chair, instead announcing that Jerome H. Powell will assume control of the Fed in February 2018, if confirmed by the senate. Yellen was the first woman to lead the 100-year-old central bank.

Powell, a Republican who joined the Fed Board of Governors in 2012, has steadily supported Yellen’s approach to monetary policy and is expected to follow a similar trajectory if confirmed to lead the central bank. Powell has voted for every Fed policy decision since 2012, including its four interest rate increases and the gradual unwinding of the Fed’s stimulus campaign.

“When Yellen does depart, she’ll be handing Powell a strong job market and a healthy expansion,” said Mark Beischel, Global Director of Fixed Income for Ivy Investments. “Powell is considered dovish overall and wants less regulatory burdens, which he feels inhibit economic growth. That would seem to indicate a steady pattern of rate increases and potential unwinding of regulation in 2018.”

“Jerome Powell is philosophically similar to Yellen, though favors less-strict financial regulation,” said Derek Hamilton, Senior Vice President, Global Economist for Ivy Investments. “We don’t see dramatic change in the short-term, as Yellen is likely to remain Chair until her term expires in February.”

Along with his appointment to the Fed, Powell served in the Treasury Department under President George H.W. Bush. In addition, he has spent time with the investment banking firm Dillon Read and with the private equity group, The Carlyle Group.

The Ivy Investments team at this point views Powell as an asset to Wall Street, as he has expressed a relatively dovish opinion on monetary policy. He has made clear his support of the balance sheet drawdown that began last month at the Fed, although he has said he doesn't see lowering the balance any lower than $2.4 trillion.

We believe this change will not have an adverse effect on the markets at this time. The Fed has done a good job of announcing moves well in advance, so that the markets have priced in many upcoming changes. As such, any volatility seen from additional rate increases – such as a likely increase in December -- or from the balance sheet drawdown should be minimal.

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Past performance is not a guarantee of future results. Investment return and principal value will fluctuate, and it is possible to lose money by investing. Fixed income securities are subject to interest rate risk and, as such, the net asset value of a fixed income security may fall as interest rates rise. Investing in below investment grade securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. Asset allocation does not ensure a profit or protect against loss in a declining market.The opinions expressed are those of Ivy Investment Management Company and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through November 2017, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial needs, risk tolerance and time horizon.

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